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### Viewing cable 08MEXICO2187, WHO ARE MEXICO'S WEALTHIEST BUSINESS LEADERS?

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
08MEXICO2187 | 2008-07-16 20:08 | 2011-02-14 12:12 | CONFIDENTIAL | Embassy Mexico
Appears in these articles: http://wikileaks.jornada.com.mx/notas/multimillonarios-mexicanos-por-privatizacion-de-empresas-publicas

`

    VZCZCXRO9189
    PP RUEHCD RUEHGD RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD RUEHRS RUEHTM
    DE RUEHME #2187/01 1982012
    ZNY CCCCC ZZH
    P 162012Z JUL 08
    FM AMEMBASSY MEXICO
    TO RUEHC/SECSTATE WASHDC PRIORITY 2588
    INFO RUEHXC/ALL US CONSULATES IN MEXICO COLLECTIVE
    RUEHC/DEPT OF LABOR WASHINGTON DC
    RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
    RHMFISS/CDR USSOUTHCOM MIAMI FL
    RHMFISS/CDR USNORTHCOM
    RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
    RHMFISS/DEPT OF ENERGY WASHINGTON DC
    RUEATRS/DEPT OF TREASURY WASHINGTON DC

` `

      C O N F I D E N T I A L SECTION 01 OF 05 MEXICO 002187

      SIPDIS

    STATE FOR A/S SHANNON
    STATE FOR WHA/MEX, WHA/EPSC, EB/IFD/OMA, AND DRL/AWH
    STATE FOR EB/ESC MCMANUS AND IZZO
    USDOC FOR 4320/ITA/MAC/WH/ONAFTA/GERI WORD
     USDOC FOR ITS/TD/ENERGY DIVISION  TREASURY FOR IA (RACHEL JARPE, LUYEN TRAN)  DOE FOR INTERNATIONAL AFFAIRS KDEUTSCH, ALOCKWOOD, GWARD  NSC FOR RICHARD MILES, DAN FISK  STATE PASS TO USTR (EISSENSTAT/MELLE)
    STATE PASS TO FEDERAL RESERVE (BORA DURDU)

      E.O. 12958:
    DECL: 04/05/2011
    TAGS: ECON EINV MX

    SUBJECT: WHO ARE MEXICO'S WEALTHIEST BUSINESS LEADERS?

    REF: A. MONTERREY 101  B. 06 MEXICO 6413  C. 08 MEXICO 1840  D. 07 MEXICO 6249

      Classified By: Classified by Acting Econ M/C Laura Kirkconnell for reas  ons 1.5 (b) and (d.)

    ¶1. (SBU) Summary: Mexico, a country where roughly 40% of the  population lives in poverty, has 10 people on FORBES  Magazine's 2008 list of the world's billionaires. While  these individuals have made important contributions to  society via the expansion of services to marginalized areas,  job creation, and charitable donations, this concentration of  wealth and economic power hinders Mexico's ability to realize  more and deeper levels of competition in key industries.  This telegram spells out who these individuals are, how they  got where they are, and how this concentration of wealth  affects Mexico. End Summary.

      ------------------------------------
    Mexico's Wealthiest Business Leaders
     ------------------------------------

      2. (SBU) A number of prominent families control a significant  amount of wealth in Mexico. The net wealth of the ten  richest people in Mexico -- a country where more than 40% of  the population lives in poverty -- represents roughly 10% of  the country's GDP. To facilitate USG understanding of what  analysts are referring to when they talk about Mexico's  wealthiest business leaders, Post is providing the following  list, which draws from FORBES Magazine's 2008 list of the  world's billionaires. This list is by no means exhaustive.

    Carlos SLIM Helu and family
    ------------------------

    ¶3. (SBU) In March 2008, FORBES ranked telecom tycoon Carlos  SLIM as the second-richest person in the world, behind Warren  Buffet and ahead of Bill Gates. His net worth of $60 billion  dollars is roughly equivalent to 6% of Mexico's GDP. This is  up from $13.8 billion dollars in 2004, when he ranked number  17. SLIM made it into the big leagues in 1990 when he led a  group of investors in buying Telmex from the GOM in a public  tender during the presidency of Carlos Salinas. Telmex now  controls nine of every ten landlines in the country, while  SLIM-controlled America Movil via its subsidiary Telcel has  73% of Mexico's cellular phone market.

    ¶4. (U) SLIM's business empire extends beyond  telecommunications. He has stakes in an airline, a bank, a  construction company, department stores (including Sanborns),  restaurants, music outlets, and he sells insurance, auto  parts, and ceramic tiles. He is developing a business  presence throughout Latin America. SLIM's holding company,  Grupo Carso, has stepped up its charitable donations in  recent years.

    Alberto Bailleres and family
     -------------------------

     5. (U) Alberto Bailleres owns a holding company called Grupo  Bal, which controls a large number of businesses, including  the huge metallurgical company Industrias Penoles; the luxury  department store Palacio de Hierro; and other companies  related to insurance, financial services, and agriculture.  His father founded ITAM, one of Mexico's top economic  universities. Bailleres' net worth is $9.8 billion dollars.

    German Larrea Mota-Velasco and family
     ----------------------------------

    ¶6. (U) German Larrea Mota-Velasco, whose net worth is $7.3  billion, is the CEO of mining company Grupo Mexico -- the  world's third-largest copper producer. He also has a  transportation business that includes the country's biggest  railroad. He sits on the boards of Grupo Banamex, Grupo   MEXICO 00002187 002 OF 005    Bursatil Mexicano, Grupo Televisa, and Seguros Comercial  America.

    Ricardo Salinas Pliego and family
    ------------------------------

    ¶7. (U) With a net worth of $6.3 billion, Salinas took over  his family's discount retailer, Grupo Elektra, in 1987. He  also launched TV Azteca, which is now Mexico's second-largest  television network; mobile carrier Unefon; and Banco Azteca,  a bank run out of Elektra stores that serves nearly 15  million mostly low-income clients.

      Jeronimo Arango
     --------------

    ¶8. (U) Jeronimo Arango, whose net worth is $4.3 billion, is  cofounder of the Bodega Aurrera supermarket chain. In  addition to supermarkets, his family's company, Grupo Cifra,  has restaurants and fashion stores. Cifra partnered with  Wal-Mart in the early 1990s, but was later bought out by  Wal-Mart, which became Wal-Mart de Mexico. Arango cashed out  for more than $2 billion dollars, and kept some of the  company's stock.

      Isaac Saba Raffoul and family
     --------------------------

    ¶9. (U) Saba runs Grupo Casa Saba, which markets health,  pharmaceutical, and beauty products throughout Mexico. Saba  has a joint venture with Telemundo to produce  Spanish-language soap operas in the U.S. and Latin America.  He tried to get a Mexican broadcasting license in 2006, but  Televisa and TV Azteca so far have managed to prevent his  full entry into the market. His net worth is $2.1 billion.

    Roberto Hernandez and family
     -------------------------

    ¶10. (U) Worth $1.7 billion, Hernandez was CEO of Banamex when  the bank sold out to Citigroup in 2001 -- a deal that gave  him almost $2 billion dollars. He owns resorts on the  Yucatan Peninsula.

      Emilio Azcarraga Jean and family
     -----------------------------

    ¶11. (U) Emilio Azcarraga Jean is Grupo Televisa's chairman  and the son of an entrepreneur who built the company from a  string of radio stations into a huge conglomerate. Televisa  owns Mexico's two main cable television and satellite  providers (Cablevision and Sky). Azcarraga was handed a  legal setback last year when the Supreme Court struck down  provisions of a radio and television law designed to protect  Televisa from new competition. He is on the boards of  Telmex, Univision, and Banamex. His net worth is $1.6  billion.

    Alfredo Harp Helu and family
     -------------------------

    ¶12. (U) Worth $1.6 billion, Harp is a beneficiary of  Citigroup's buyout of Banamex. He owns the country's  second-largest telephone company (Avantel) and the Mexico  City Red Devils baseball team. He is an active  philanthropist and Carlos SLIM's cousin.

    Lorenzo Zambrano and family
    ------------------------

    ¶13. (U) Mexico's tenth-richest man is Lorenzo Zambrano, the  head of cement giant Cemex. Zambrano, who inherited the  company from his grandfather, has turned the company into one  of the world's largest cement makers (Ref A). He also owns  part of the telecom company Axtel, and sits on the boards of  several large Mexican businesses.

      ---------------------------
    How They Got Where They Are
    ---------------------------    MEXICO 00002187 003 OF 005

    ¶14. (SBU) It is difficult to make generalizations about how  these individuals accumulated their wealth. While most of  them inherited their wealth, others are largely self made.  And while some in this group have embraced the need for  transparency and modern business practices, others prefer  their privacy and more traditional ways of doing business.  That said, some of these individuals clearly took advantage  of shortcomings in Mexican institutions and their  relationships with important political figures to expand  their wealth. Several of the business dynasties that these  individuals own took off in the 1990s, when then-President  Carlos Salinas de Gortari (PRI) began dismantling Mexico's  centralized economy. Salinas sold off more than 1,000  state-run companies from metal foundries to railroads.  Unfortunately, in some cases, these privatizations ended up  creating private-sector monopolies -- benefiting savvy  businessmen and politicians while leaving the average Mexican  out in the cold.

      15. (SBU) A classic example of this is Telmex's  privatization. When SLIM and his partners purchased Telmex  in 1990, the government gave them extremely favorable terms.  Not only did the GOM sell the Telmex monopoly intact, it  barred competition during the first six years  post-privatization. While countries like the U.S. initially  barred local "baby bell" carriers from offering long-distance  and cellular service in their same area, Telmex got to do all  of this at once, and across the entire country. Indeed, it  won the only nationwide cellular-telephone concession, while  rivals had to settle for concessions that were limited to  certain regions. When competition was allowed in long  distance, foreign carriers were limited to a minority stake  in the fixed-line business. Similarly, Ricardo Salinas  acquired the state-owned Imevision television network via  auction in 1993, converting it into TV Azteca.

      --------------------------
    The Downsides of Dominance
    --------------------------

      16. (SBU) The negative aspects of this concentration of  wealth and economic power cannot be overlooked because many  of these individuals control the monopolies and oligopolies  that hold back economic growth. SLIM, Salinas, and others  have used their influence to sway economic policy and work  the system to further their business interests and hinder  their competitors. A World Bank report found that  billionaire-controlled companies in Mexico are more likely to  be involved in monopolistic practices and win amparos, or  judicial stays, which allow them to delay regulatory rulings  against them while they mire the process in appeals. The  result is that SLIM still dominates the telecom market; GE,  NBC and others are unable to break into the broadcasting  market; and the Federal Competition Commission (Cofeco)  remains unable to impose significant penalties on  anti-competitive conduct. It is worth noting that even when  Cofeco applies a penalty and wins the inevitable court appeal  filed by the defendant, it cannot always force the offending  party to pay its (minimal) fine due to its weak enforcement  mechanisms and the ability of these powerful business  conglomerates to manipulate the judicial system.

    ¶17. (C) Another tactic these individuals (and others) use to  hamper their competition is criminalizing investment  disputes. (Note: The misuse of the judicial system is  employed by Mexican companies of all sizes to resolve  disputes. It reflects weaknesses in the legal system that  companies exploit, and is one of the reasons judicial reform  is an important issue in Mexico. End Note.) Salina's TV  Azteca, for example, excels at this tactic. The most recent  dispute brought to the attention of Post -- between TV Azteca  and a major U.S. insurance company -- was based on the  insurance company's refusal to make an insurance  reimbursement to TV Azteca. The insurance company believed   MEXICO 00002187 004 OF 005    that under the terms of its contract with TV Azteca, it had  no obligation to pay the settlement, valued at approximately  USD 18 million. While the dispute was being heard in  commercial court, the company's Director General and legal  counselor were arrested without warning and thrown in jail.  Company executives were told by TV Azteca that the Director  General would be charged with criminal fraud unless the  settlement was paid. Fearing for the health of the Director  General, who required medical care not readily available in  prison, the U.S. insurance company appealed to the judge to  release the Director General on health grounds. The judge,  who unsubstantiated rumors suggest may have accepted a bribe  of over a million USD on this case, refused to release the  Director General, and threatened to keep him in jail for the  duration of the weekend. Ultimately, the insurance company  paid USD 18 million as a settlement to have the Director  General released.

    -------------------------------------
    Calderon's Approach: Little by Little
     -------------------------------------

    ¶18. (SBU) President Calderon has pledged publicly to foster  competition in the local economy since his campaign. Senior  administration officials, however, have told Emboffs that  they do not want to open too many reform fronts at one time  -- suggesting that they understand the importance of  increasing competition in the local economy but know that  they have to be realistic when going up against influential  powerbrokers like Carlos SLIM. This may be particularly true  as the mid-term election draws near, given that these  economic giants often help finance campaign costs, and in the  case of Televisa and TV Azteca, control television coverage  of Mexican politics. Instead, Calderon has given priority to  other economic reforms (tax, pension, energy), and moved  quietly (and very slowly) on competition reform.

    ¶19. (SBU) The limited progress we have seen has been on the  telecommunications front. SLIM has made known his desire  that Telmex be allowed entry into the television market to  complete their "triple play" -- telephone, internet and  television -- offering. In exchange for changing Telmex's  concession, the administration is requiring Telmex to comply  with number portability and interconnection requirements --  thus helping to foster increased competition in the sector.  The administration also has announced its intention to  auction a large amount of spectrum that might be used by  existing mobile telecommunications companies or new entrants  to provide broadband telephony services to the Mexican  consumer.

    -------
    Comment
    -------

    ¶20. (SBU) The Mexican government has long been called on to  address monopolistic practices in the both the public and  private sector. Critics had hoped that the situation would  improve when the National Action Party (PAN) assumed power  from the Institutional Revolutionary Party (PRI) in 2000, but  progress has been minimal. The current administration's  strategy of slowly chipping away at the problem is better  than no progress at all, but until it deals with the "Robber  Barons" of its time, progress will continue to be limited.

    ¶21. (SBU) Of course, these economic powerhouses are not the  only obstacle to improving competition in the Mexican  economy. Cofeco needs to be strengthened so it can enforce  deterrent penalties on anti-competitive conduct. A bill that  would help make progress on this front is awaiting  congressional approval, but some PRI and PAN legislators have  been blocking it (Refs C and D). Equally important, Mexican  consumers need to stand up for their rights and press for  legal changes to give them a more powerful voice. Excessive   MEXICO 00002187 005 OF 005    regulations and obstacles to opening new businesses have  hindered the advancement of new entrepreneurs, as has  Mexico's underdeveloped private equity industry. Taming  widespread corruption and strengthening the judicial system  would also help promote competition. With regard to the  judiciary, the Embassy is working with Cofeco on a series of  seminars and exchanges between U.S. and Mexican judges and  competition officials designed to raise awareness of the  importance of robust competition and compare experiences in  enforcing our respective competition laws. Until the Mexican  government, congress, judiciary, and consumers work together  to address these issues, a lack of competition will continue  to be a stumbling block in Mexico's drive to improve the  economy's productivity, innovation, and competitiveness.  Visit Mexico City's Classified Web Site at  http://www.state.sgov.gov/p/wha/mexicocity and the North American  Partnership Blog at http://www.intelink.gov/communities/state/nap /  GARZA

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